Gold Discussion: Chatting with A Dead Economist: Charles Rist

The demonetisation of gold is easy enough. The difficult thing is to find something to take its place.—Charles Rist (1938)

Gold, that most divisive of metals, has been much talked about of late as its market price surges, a strange thing to witness considering that it was long ago banished from the monetary system and condemned as a “barbaric relic.” It’s even stranger considering that, in our time, to talk respectfully about gold usually requires seeking out someone dead to do it with, and one such someone is the French economist, Charles Rist. A reading of his History of Monetary and Credit Theory (published in 1938) not only delivers on what its title promises but also includes a strident defense of the gold standard.

Rist was born on New Year’s Day 1874 and he would become a notable professor, deputy governor of the Bank of France, and advisor to foreign governments. Despite his formerly exalted status, time has left Professor Rist largely forgotten. This is a shame because if any among the economists proved themself an excellent writer, Rist was the one. His pen is acerbic but respectful, his explanations to-the-point, clear, and thorough. He writes to explain, not to show off, and repeats his points to lessen any chance of misunderstanding. He was an intellectual able and willing to get down in the muck and explain things to the proletariat. This makes him a rarity—an economist who is a joy to read.

Rist’s current obscurity is arguably due to the fact he never had the wind of fashionable opinion at his back, either then or now. His support of a gold standard did not arise from any theoretical musings about his chosen profession of economics but because his historical research had convinced him it was the most stable of monetary systems. To Rist, experience trumped theory and he declared that “man can never dispense with thought; but thought unsupported by experience is futile.”

He was as much a historian as an economist and clearly thought the former role was essential to his success in the latter. He wrote his History because “to bring back to mind the opinions expressed by the great thinkers of other times...is of great value in placing in their true perspective many theories of today, which their authors sincerely believe to be wholly new.” In monetary theory, as in life, he argued, there is nothing new under the sun. This book makes it hard to disagree.

The villain of this piece is the infamous John Law—the father of central banking—who Rist fingers as the wellspring of his time’s confusion over money. To Rist, Law erred most when he put the monetary cart before the horse as Law believed money creates wealth, whereas the hero of Rist’s book, the Irish economist and banker Richard Cantillon, understood “money follows industry and does not create it.”

Law was the genesis for a theory of money which, in Rist’s words, “makes him so representative of all currency cranks”—the idea that money is fit only to purchase things with. To Law, it was merely a token of exchange, otherwise of no value. Rist condemned the theory because it both denied historic experience and declared that “money is not the durable and indestructible good, of stable value and unlimited acceptability.” He quotes Law’s own words that “money is not the value for which Goods are exchanged, but the Value by which they are exchanged: The use of money is to buy goods, and silver while money is of no other use” (emphasis Law’s).

Law not only attached far too much importance to the role of money and credit in economic growth, he also attached no importance at all to money’s vital role as a store of value, and Rist points to Keynes—the revered monetary theorist of his generation—as walking down the same erroneous path. With the rise of Keynes, Rist’s belief that a most important function of money is its use as a means of storing value was far outside of what was trendy. Storing value for later use—saving—to Keynes was a disgrace and a sin; he referred to it as “hoarding,” the most evil of decisions. Rist, on the other hand, argued that “hoarding is not the death of money,” but that money’s ability to be “hoarded” is one of its essential attributes. Keynes won that battle in the court of intellectual opinion, both then and now.

Yet, instinct remained, so while it was cast outside the global monetary system, Rist could point out how gold nonetheless retained its status as the store of value,

People still look on gold as a precious object. To rid them of what certain people would like to persuade them is an illusion, it would have to be shown that gold is neither beautiful, nor durable, nor imperishable; that nobody wants it anymore, and that in accumulating it they are accumulating nothing but ashes. Up to the present nobody has succeeded in proving this.

This still holds true today, as the current rally in gold proves, but this is no harbinger to the resurrection of stable money. While investors may favor gold as the ultimate store of value, they have forgotten exactly why that very characteristic also made it a superb monetary standard. Between 1800 and 1933, America’s era of commodity money, prices remained relatively unchanged. Sitting down and talking to Rist is a reminder of why that was and why it could be again.

Courtesy of Mises.org

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